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Sixth Circuit Weighs Ohio’s Standing to Bring ARPA Challenge

Posted on Jan. 27, 2022

A three-member panel of the Sixth Circuit questioned whether Ohio has standing to challenge a provision in the American Rescue Plan Act that prevents states from using the act's aid to offset reductions in net tax revenue.

In January 26 arguments in Ohio v. Yellen, the judges showed particular interest in pressing Ohio Solicitor General Benjamin M. Flowers on whether the state has suffered a concrete injury under the provision it claims is unconstitutionally ambiguous, and whether it has standing to bring its suit.

Daniel L. Winik of the Justice Department, arguing on behalf of the U.S. Treasury and Treasury Secretary Janet Yellen, urged the panel to reverse the U.S. District Court for the Southern District of Ohio’s July 1, 2021, permanent injunction blocking Treasury from enforcing the provision against Ohio. Winik tried to reassure the court that “states are free to pay for tax cuts using their own money.”

Section 9901 of ARPA (P.L. 117-2) restricts aid provided by the act from being used to “either directly or indirectly offset a reduction in the net tax revenue” of a state “resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.” Flowers noted that Ohio is poised to receive a total of $5.4 billion in relief funds.

Ohio’s challenge is one of six similar lawsuits filed by state attorneys general. Like the federal district court in Ohio, federal courts in Kentucky and Alabama have declared the provision unconstitutional and enjoined Treasury from enforcing it. But federal district courts in Arizona and Missouri concluded that the challenging states lacked standing to bring their claims. The Justice Department has appealed Kentucky’s challenge to the Sixth Circuit as well.

During oral argument, the judges became most animated when considering Ohio’s alleged injury. Judge John K. Bush acknowledged the state’s frustration but admitted that he is struggling with the case’s ripeness issue, whether there is indeed a controversy, and whether the tax mandate is causing imminent harm to the state.

Judge Richard Allen Griffin questioned whether Ohio has suffered an injury. “That’s speculative; that’s conjecture. It doesn’t really sound like a concrete injury. It sounds like a hypothetical injury that may not occur,” he said.

Griffin added that federal courts’ jurisdiction is limited to actual cases and controversies, and that the court would not render judgments on hypothetical situations.

“My problem with this is, it really does appear to be hypothetical,” Griffin said. “What if? What if the federal government did this? What if the federal government took this stand? ‘The federal government says we’re not doing that'? Well! What if they change their mind? Is this a matter that we really have jurisdiction on? I just question it.”

Judge Bernice B. Donald seemed to agree, wondering how Ohio would be harmed by waiting to bring the suit later. “Right now, you don’t know whether the government is going to seek recoupment or not,” she pointed out to Flowers. “Why would the court be required to deal with this now, when there is no tangible evidence that the government is going to seek recoupment? There’s no tangible evidence now, and if there were an action, it would certainly be ripe for a court action at that time.”

Flowers answered that Ohio has been injured because the state does not know if the mandate would apply to its choice to cut taxes. He suggested that by waiting to bring a legal challenge, Ohio could face “something of a double penalty, because not only will we have lost tax revenue, we’ll be forced to pay back equal amounts to Treasury, potentially billions of dollars.” Flowers added that the tax mandate requires the state “to labor under this cloud of ambiguity.”

“Courts have never said you have to wait until they somehow specify what they’re going to charge you with before you can bring an injunction to challenge a vague law,” Flowers said.

The judges also pondered why Ohio would have accepted the funds if the state did not agree with their restrictions. Bush asked Flowers to confirm that there was no deadline for Ohio to say it would accept the money, which Flowers did.

Bush said he was "concerned by the fact that the state accepted the funds after you had made this allegation that it was too difficult for the state to understand the condition, then the state proceeded not only to accept the funds, but to cut taxes. It kind of undercuts your whole allegation that you’re being chilled in the taxing power by ambiguous provisions in the statute.” 

After Flowers suggested that Ohio had been coerced into accepting the federal money, Griffin asked, with more than a hint of doubt, “You were coerced into accepting money from the federal government? I don’t quite understand that argument at all.”

“Ohio has a balanced budget already. Why were you coerced to take money from the federal government?” Griffin pressed.

Flowers answered that the state needed the money to cover “ballooning” requests for public benefits in the wake of COVID-19 disruptions. He also explained, “If we turn this [money] down, we’re telling Ohioans that not only are we not going to accept the help that you helped pay for, we’re going to put all of the onus on you.” Flowers pointed out that Ohio’s sister states would take the money with no questions asked, giving residents and businesses in those states an unfair leg up.

At the Sixth Circuit, Ohio v. Yellen is Docket No. 21-3787. 

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